Tag: disclosure controls

SEC brings settled charges against GE for disclosure violations and inadequate accounting and disclosure controls

Right on the heels of the SEC’s action against Cheesecake Factory for misleading public statements regarding its financial performance (see this PubCo post) comes this settled action against General Electric Company—also for misleading public statements about its financial performance. In this action, the SEC alleged that GE failed to provide material information that would have allowed investors to understand how it was generating profits and cash flow in two key segments, power and insurance, the quality of those earnings and the underlying risks. And, as challenges in these segments were later disclosed, the company’s stock price fell almost 75%. As reported in the WSJ, the SEC and DOJ were “investigating GE’s accounting for about two years after the company disclosed large write-downs tied to its insurance business and its power business. The SEC had warned GE in September that it was preparing civil charges, and GE said it had set aside $100 million to resolve the matter.” That reserve turned out to be somewhat optimistic—a bit like some of GE’s insurance reserves—as the final civil penalty was actually $200 million. It’s worth noting here that, as stated in GE’s 8-K regarding the settlement, in its Order, the SEC “makes no allegation that prior period financial statements were misstated. This settlement does not require corrections or restatements of GE’s previously reported financial statements, and GE stands behind its financial reporting.” That is, in the end, the charges were not about funny accounting—even though some might question certain of the judgments—they were about the disclosures about the accounting, the controls over the accounting and the controls over the disclosures.